Innovation Clusters: Why companies are better together

• Innovation clusters require six key ingredients: skills, accommodating policy framework, infrastructure, low cost structures (in early stages), a good lifestyle offering and serendipity.
• Clusters are like the companies they host: they change over time, and their long term success depends on how well they adapt to the challenges of success, like congestion and increased rents
• Clusters are strongly reliant on an open immigration policy at the national level – tightening borders reduces a cluster’s access to global talent

Innovation is often associated with triumphant lone inventors. The likes of Thomas Edison, Louis Pasteur or Bill Gates are the central characters in this narrative. But all innovators spring out of a specific context. The environments that foster their individual and collective success are very often ‘innovation clusters’: ecosystems that stimulate and nurture the best ideas and attract the brightest talents.
Clusters emerge when a network of companies co­exists within a geographic location, allowing each of them to collaborate – and compete – in a way which delivers greater productivity gains than they would achieve in isolation. Silicon Valley is the most famous, but there are countless others across every continent.
Clusters attract innovative people. They network, leading to the cross­-pollination of ideas. Companies benefit from each other’s success: What one invents, rivals can access – think of a productivity­boosting tool like Dropbox. And what one firm invents, others can build on. Think of the ‘sharing economy’, led by trailblazers Uber and Airbnb, in turn giving rise to an army of start­ups taking the same idea to new applications. The sharing of knowledge, the spill­over effects of innovation and the networking that densely populated spaces enable are all key ingredients for start­up success.
Yet for all their benefits, innovation clusters are not straightforward to build – and many do not last, even with the ‘magic ingredients’ seemingly there. To prosper, clusters need six key success factors: skills and talent, accommodating policy frameworks, infrastructure, low costs (especially in the early stages), a good lifestyle offering to draw talent, and finally ­ good luck, whether geography (proximity to key markets), historical accidents or even good fortune.
The ‘big 6’ success factors

These six factors are necessary conditions, although they are not always sufficient. Many places in the world lay claim to these six, but never give rise to a successful cluster. These factors are best seen as the necessary conditions for clusters, but not – on their own – the silver bullet. Cluster success depends both on individual factors, but also the interplay between them. Good universities are little use if there is no connectivity with industry. A high standard of living is not helpful if immigration policies prevent global talent from moving to the cluster.
There are clearly many that have done it well, are still doing it well, and some that have tried and struggled.
– See more at: http://destinationinnovation.economist.com/part-1/#sthash.iRIxQ9vD.dpuf
 
 
WRITTEN BY THE ECONOMIST INTELLIGENCE UNIT (with permission)